Negotiating for the Market

37 Pages Posted: 20 May 2009 Last revised: 3 Apr 2017

See all articles by Joshua S. Gans

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER

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Date Written: April 2, 2017

Abstract

In a dynamic environment where underlying competition is “for the market,” this paper examines what happens when entrants and incumbents can instead negotiate for the market. For instance, this might arise when an entrant innovator can choose to license to or be acquired by an incumbent firm; i.e., engage in cooperative commercialization. It is demonstrated that, depending upon the level of firms’ potential dynamic capabilities, there may or may not be gains to trade between incumbents and entrants in a cumulative innovation environment; that is, entrants may not be adequately compensated for losses in future innovative potential. This stands in contrast to static analyses that overwhelmingly identify positive gains to trade from such cooperation.

Keywords: innovation, incumbency, dynamic capabilities, licensing, mergers, commercialization

JEL Classification: O31

Suggested Citation

Gans, Joshua S., Negotiating for the Market (April 2, 2017). Available at SSRN: https://ssrn.com/abstract=1407404 or http://dx.doi.org/10.2139/ssrn.1407404

Joshua S. Gans (Contact Author)

University of Toronto - Rotman School of Management ( email )

Canada

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